U.S. jobs return to peak, but quality lags

The U.S. finally clawed back all the jobs lost since the recession hit in late 2007, a watershed in a grindingly slow recovery that finds a labor market still in many ways weaker now than before the downturn.

U.S. payrolls in May hit an all-time high after the first four-month stretch of job creation above 200,000 since the boom days of the late 1990s, according to the Labor Department's latest employment report. In all, employers added 217,000 jobs last month, nudging payrolls above the prior peak in January 2008. The jobless rate, obtained from a separate survey of households, remained at 6.3%, the lowest level since September 2008.

Friday's report renewed optimism for a long-awaited acceleration in economic growth and helped drive stock markets to new highs. The Dow Jones Industrial Average rose 88.17 points, or 0.5%, to 16924.28.

Despite signs of sustained strength, the job market is a far cry from what it was before the financial crisis slammed the economy in 2008. The number of jobs in manufacturing, construction and government—typically well-paying fields—has shrunk, while lower-wage work grew. The U.S. has 1.6 million fewer manufacturing jobs than when the recession began, but 941,000 more jobs in the accommodation and food-service sector. More than 40% of the jobs added in just the past year have come in generally lower-paying fields such as food service, retail and temporary help.

The economy "is now beginning to show incremental employment growth," said Doug Handler, chief U.S. economist at IHS Global Insight. But now the focus is turning to the types of jobs being created. The first new job beyond the last peak, he said, will probably be "a barista at local coffee shop."

Heather Hodge of Seattle is one recently hired worker who feels "light years behind where I thought I'd be" when graduating from culinary school in 2010.

But the 24-year-old is glad to have health benefits and a decent wage—$15 an hour—to pay rent and cover student-loan payments. She was hired this spring as an ice-cream maker at Molly Moon's Homemade Ice Cream Shop in Seattle.

"At least now I have a steppingstone where my future looks tangible," she said.

The improving outlook is likely to give the Federal Reserve more confidence about winding down its bond-buying stimulus program this year. But the central bank may not shorten its time frame for raising interest rates, which have remained near zero since late 2008, given how difficult it is to assess the labor market's underlying vigor. Fed officials have their next policy meeting June 17 and 18.

"The Fed can begin to dial back their obsession with the top-line payroll number and instead focus on the quality of jobs created, who is working and growth in income," said Steve Blitz, chief economist at ITG Investment Research.

Steadier job growth in recent months should put more money into consumers' pockets and improve confidence, which could support stronger economic gains later in the year.

The U.S. economy has grown at a little better than 2% pace since the recovery began in mid-2009. A brutal winter caused first-quarter growth to shrink at an annualized 1% rate, the Commerce Department said last week. Many economists project a growth pace of at least 3% in the second quarter.

But the recession has left multiple scars across the labor landscape. When adjusted for inflation, Americans' earnings are little changed since the recovery started in mid-2009. And the share of Americans participating in the labor force, 62.8% in May—down from 66.2% at the start of 2008—is near its lowest level since the late 1970s. The number of adults not in the labor force grew by more than 13 million since the start of the recession.

The economy took more than six years to recover its previous peak level of employment—almost double the length of the jobs rebound that began in 2001, the next-slowest recovery since World War II.

The jobless rate is down 1.2 percentage points from a year earlier, typically a sign of an improving labor market. But the growth in jobs is not keeping up with the population gains. And at least part of the decline in the jobless rate is due to some Americans giving up looking for work.

A broader measure of unemployment that includes those working in part-time positions but who would prefer full-time jobs was 12.2% in May. Full-time jobs, rather than part-time work, often give households the confidence needed to buy houses and increase spending.

The average hourly wage rose a nickel in May, but barely stayed ahead of tepid inflation, up 2.1% above the year-earlier level. Consumer prices were up 2% in April from a year earlier, the Labor Department said last month.

Tour-bus operator Bailey Coach Inc. of York, Pa., is among the employers adding jobs—but cautiously. The 50-person company recently hired three workers and replaced a few aging vehicles.

"When I'm out driving the bus myself instead of managing, that tells me we need to start hiring people," said President John Bailey. Bailey Coach recently picked up a contract from a European client and has been busy with more weddings this spring than in recent years.

Still, he remains hesitant. "We had pains and had to go through some layoffs," Mr. Bailey said. "I still have that uneasy feeling in my stomach."

Other companies, such as software firm FranConnect Inc. in Reston, Va., say a lack of qualified candidates is holding back hiring. Chief Executive Amit Pamecha has added 30 people to his almost 300-person staff this year, but still has multiple openings.

The firm has started recruiting college graduates with little technical experience in hopes of filling the void by offering training.

"As business picks up, the labor market is just at the start of the point where it is tightening," Mr. Pamecha said. "If there was a qualified candidate, would we pay more? Absolutely."

Crissa Toledo's recent job quest points to other signs of momentum in select portions of the job market. The 22-year-old recent graduate from the University of Iowa fielded seven job offers. She even had the luxury of weighing company culture and location, in addition to pay.

This month, she starts in a digital-marketing position at Accenture Interactive&lrm in Chicago.

Landing job offers has been common among students who completed internships, but those without much work experience are "having a little harder time," Ms. Toledo said. "I feel like I can hit the ground running."